Data released by SQM Research has revealed that the number of national residential rental vacancies was just over 71,000 in August, giving a national vacancy rate of 2.2%. Down slightly on previous reports but what does that mean for property investors? Louis Christopher from SQM Research discusses that with us.

Transcript:

Kevin: Data released by SQM Research this week revealed that the number of national residential rental vacancies was just over 71,000 in August, giving a national vacancy rate of 2.2%, down slightly. What does that mean for property investors? Joining me to talk about this, Louis Christopher from SQM Research.

Louis, thank you for your time.

Louis: Good day there, Kevin.

Kevin: Is this good news?

Louis: For existing property investors, yes. I must state that it is still a mixed market out there. We still recorded some elevated vacancies in Perth, but overall, most capital cities actually recorded a decline, and overall, I would say that the market moderately is a landlord’s market.

Kevin: When you look at Hobart, I think you’ve recorded 0.4%. That’s a pretty tight market.

Louis: That’s the lowest vacancy result we’ve recorded for any capital city since our records began. Yes, things are really tight in Hobart. It’s a very strong landlord’s market. We’re recording some big rises in rent there, as well.

Kevin: That always does happen.

So, across the nation, 2.2%. Would you say that that’s definitely in favor of landlords?

Louis: Yes. Moderately in favor of landlords, but it varies when we speak of each individual city. Perth, for example, is recording a vacancy rate of 4.6%, so that’s still a tenant’s market, though I note the vacancy rate is starting to tighten after years of rises following the mining downturn. Then Hobart we’ve just mentioned before is 0.4%.

When we look at the big capital cities such as Brisbane, which we have at 3.1%, I would say that’s moderately in the tenant’s favor. In Sydney, at 2%, that’s very modestly in the landlord’s favor. And then when I look at Melbourne at 1.7%, that’s definitely a landlord’s market there.

Kevin: Obviously from what you’re saying, I can take that the tipping point is around 2%.

Louis: Yes. Look, we put guidance out there that a market that’s in equilibrium is somewhere between 2% to 3%, but it also depends on the relative direction. So, if the market is tightening – if you’re seeing vacancy rates fall form, say, 5% to 3% – I would suggest to you that’s a market increasingly turning towards landlords even though the absolute number is still 3%.

And vice versa, if you see a city where the vacancy rates go from, say, 1% to 2%, the mere fact that they’re rising means that it’s increasingly becoming a tenant’s market and it becomes more difficult for landlords to increase the rent.

Kevin: If you look at, say, Brisbane as an example, the vacancy rate dropped from 3.3% to 3.1%, but still a lot of vacant properties – almost 11,000 – when you look at how many there are in Sydney, 12,700.

Louis: Yes, that’s exactly right. There’s still a lot of stock in Brisbane to absorb, particularly the inner-city apartment market where everyone knows now we’ve had a major over-supply issue for a number of years. So yes, Brisbane still has some stock to absorb before there will be any real rental pressure there.

That said, though, it depends which area in Brisbane we look at. If we look at, say, Wynnum/Manly we’ve seen fairly tight vacancy rates, well under 3%, and that is a local market there that is favoring landlords.

Kevin: Another stat that I’d like to look at in your report is the asking rents. You mentioned there about Hobart and how it’s climbing rather dramatically, obviously. What are you seeing around Australia in terms of asking rents? How are they going?

Louis: Once again, it depends on each city. Yes, in Hobart, rents are up 14.5% from 12 months ago.

Kevin: Wow. That’s big.

Louis: If you were a tenant there or you’re looking to try and lease a property, that’s a really tough and tight market to lease into right now.

On the other hand, when we look at, say, the Perth rental market, Perth rents have fallen by about 6.5% over the last 12 months, and the total accumulated falls from their peak back in 2013, is some 33%. So, a heavy tenant’s market there in Perth, as discussed before.

Yes, it does vary from city to city. One market that seems to be starting to accelerate again in terms of rent is Canberra. Canberra rents are up 6.8% for houses, 4.2% for units over the last 12 months, and also has recorded a very strong monthly rise of over 1% just for the month. So, that’s a market that was a tenant’s market about two years ago, and it’s definitely switched around now to being a landlord’s market.

Kevin: Interesting when you look at the national figure, houses compared to units and then you look at the cap city figure. They’re a mirror reverse in terms of growth in the asking rents, aren’t they?

Louis: Yes, that’s exactly right. The national results, units seem to be performing a little bit better than houses right now on a yearly basis. When we look at the capital city result, houses have been doing better than units on a yearly basis.

I think the national result has been influenced by the regional townships, because we’re covering the whole country including the agriculture-based townships, the mining towns, the regional areas such as the Gold Coast, and that market is recording more modest increases in rents, and I think the result has been dragged down by the downturn in the mining towns, etc.

The capital city rents, of course, are just a little bit above the CPI at the moment, so the capital cities are delivering rent rises above inflation at this point in time.

Kevin: When you look at the cap city average, obviously what’s holding the units back from houses would have to be that potential over-supply of units in those inner-city areas.

Louis: Yes, correct. Particularly Brisbane, which has been holding it back. There have been a few years in the past that Melbourne and Sydney would have an over-supply of apartments in the inner-city areas. That hasn’t materialized for those cities, and I think the reason why that has not actually really materialized is the faster than expected population growth rate for those two capital cities over the past 12 months.

Melbourne has been rising at 2.4% per annum, Sydney at 1.7% per annum. For those two cities, that’s basically the size of an Olympic stadium each and every year in terms of their population increase, and that’s what’s actually absorbed the additional stock that has come into the market.

So, there has been more supply in those cities, but given the excessive population growth rates, all that additional stock has been absorbed.

Kevin: To see the report for yourself, go to Louis’s website, SQMresearch.com.au. Louis Christopher has been my guest.